The market seems to have rewarded companies that have reported better-than-expected performance in the quarter ended March. Tata Motors, ITC, Zee Entertainment Enterprises, Biocon, Asian Paints, Hero MotoCorp, Bajaj Auto, Finolex Cables and V-Guard Industries are among 54 stocks that have hit 52-week highs in past two weeks.
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An analysis of 844 companies from the BSE 500, mid and small-cap indices (excluding state-owned banks and refineries) that announced their March quarter earnings reveals that stocks of 316 companies outpaced the benchmark indices after the results.
These 316 firms have reported 31 per cent year-on-year (y-o-y) growth in their aggregate net profit. On the other hand, the remaining 528 companies that underperformed the market have recorded 25 per cent y-o-y drop in their combined net profit.
According to analysts at Motilal Oswal Research, major earnings surprises were from Tata Motors, L&T, UltraTech Cement, Nestle India, Kotak Mahindra Bank, Mahindra & Mahindra Financial Services, Hindalco, JSW Steel, Bharat Petroleum Corporation, Tech Mahindra, Bharti Airtel and Idea Cellular. On the other hand, they were disappointed by ICICI Bank, Bank of Baroda, Britannia, Maruti, BHEL, Cipla, Dr Reddy’s, Titan, and Coal India’s numbers.
Markets, too, acknowledged the performance. Tata Motors, L&T, Hindalco Industries, YES Bank and HDFC gained around 15 per cent each as compared to a less than six per cent rise in the benchmark index after the March quarter results.
“The results were better than expected. About 46 per cent of Nifty companies beat our estimates. This was better than 36 per cent in the December quarter, and the highest in nearly three years after the 50 per cent reached in the second quarter of financial year 2013-14 (Q2 FY14). On the other hand, 34 per cent missed our estimates, the lowest since Q1 FY15. After many quarters, several sectors like energy, telecom, utilities, discretionary and cement saw earnings upgrades,” says Neelkanth Mishra, managing director-equity research, Credit Suisse.
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“Earnings surprises came in some of the relatively low expectation sectors like materials, telecom and industrials, where trends have been poor in the recent past, possibly resulting in very muted expectations going into the quarter,” said Surendra Goyal of Citi Research in a report co-authored with Vijit Jain.
“For FY17 Sensex earnings, Citi analysts forecast around 14 per cent y-o-y growth (slightly lower than consensus expectation of 16 per cent). While this looks high, given the recent trajectory, favourable base effect and some underlying business improvement should result in growth improving significantly y-o-y in FY17,” according to the report.
Given the optimism surrounding the monsoon and the March quarter performance, markets have also rewarded non-banking financial company (NBFC) stocks like Cholamandalam Investment and Finance Company, Manappuram Finance, Shriram Transport Finance Company, Mahindra & Mahindra Financial Services, Muthoot Finance; and chemicals shares such as Pidilite Industries, Sharda Cropchem, Navin Fluorine International, Deepak Nitrite and GHCL. These stocks have rallied around 10 per cent each after the March quarter results.
While most analysts remain hopeful that the monsoon forecast will not be revised downward, any downward revision, they warn, could see gains being wiped out. However, they say, companies with robust fundamentals and a diversified portfolio should continue to do well in the long run.